ANNUAL REPORT
Templeton Emerging
Markets Income Fund, Inc.
August 31, 1999
[FRANKLIN TEMPLETON LOGO]
PAGE
SHAREHOLDER LETTER
Your Fund's Goal: Templeton Emerging Markets Income Fund seeks high current
income, with a secondary goal of capital appreciation, by investing primarily in
a portfolio of high-yielding debt obligations of sovereign or sovereign-related
entities and private sector companies in emerging market countries.
Dear Shareholder:
We are pleased to bring you this annual report of Templeton Emerging Markets
Income Fund for the 12 months ended August 31, 1999. During the reporting
period, the devaluation of Russia's and Brazil's currencies, as well as
anticipation of tightening U.S. monetary policy in the second half of 1999
contributed to considerable volatility in emerging debt markets. However, many
of these markets recovered to post strong gains, and the J.P. Morgan Emerging
Markets Bond Index Plus (EMBI+) rose 30.47% during the period under review.(1)
Debt instruments issued by the governments of Venezuela,
CONTENTS
Shareholder Letter .................. 1
Performance Summary ................. 5
Important Notice to
Shareholders ........................ 6
Year 2000 Readiness Update .......... 9
Financial Highlights &
Statement of investments ............ 11
Financial Statements ................ 15
Notes to Financial Statements ....... 18
Independent Auditors' Report ........ 20
Change in Independent Auditor ....... 24
[pyramid graph]
1. Source: Standard & Poor's Micropal(R). The unmanaged J.P. Morgan EMBI+
measures performance of external debt instruments in 14 emerging markets. It
includes reinvested interest. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 12 of
this report.
PAGE
Geographic Distribution
Based on Total Net Assets
8/31/99
[PIE CHART]
Latin American............... 67.9%
Asia......................... 16.7%
Europe....................... 10.9%
Short-Term Investments
& Other Net Assets.......... 4.5%
Russia, and Bulgaria were among the best performers, while Ecuadorian bonds were
among the worst performers.
Within this environment, the Fund provided a one-year cumulative total return of
37.66% in market-price terms, and 35.16% in net asset value terms, as shown in
the Performance Summary on page 5. The Fund maintained a quarterly distribution
payment of 31 cents per quarter and offered an average dividend yield of 12.4%,
based on the fiscal year average price of $10 per share.
The Fund's strong performance in the face of high market volatility can be
attributed in large part to its holdings of Latin American bonds. During the
period, issuer countries in this region demonstrated a commitment to policies of
economic adjustment and improving credit quality. In particular, the governments
of Mexico and Argentina implemented policies intended to protect their economies
from the deterioration in global commodity prices. Although Argentina's economy
suffered because of the country's fixed exchange rate, the Argentinean
government was successful in obtaining private sector credit to help it meet its
payment obligations. In our opinion, future economic growth in Latin America
will depend on the outlook for global commodity prices, the main source of
export revenue for the region. We therefore maintained the bulk of the Fund's
assets in Latin America, slightly decreasing our exposure there from 71.3% to
67.9% of total net assets over the period.
The Fund also benefited from its increased exposure to Bulgaria, whose bond
market performed well during the period under review. This weighting represented
one of our largest portfolio changes, rising from 1.7% to 4.8% during the
reporting period.
2
PAGE
With 94% of the Fund's assets invested in U.S. dollar-denominated bonds, it had
very little exchange rate exposure at the end of the reporting period. Given
recent market volatility, our focus has been on liquid instruments, namely
sovereign eurobonds and Brady bonds, which represented 64.1% and 9.1%, of the
Fund's net assets, respectively, as of August 31, 1999. Corporate eurobonds
represented 22.2% of net assets, while the Fund's cash allocation was equivalent
to 1.4%.
Looking forward, we believe global bond markets will continue to be influenced
by rising U.S. interest rates. Although rising rates in the U.S. are usually bad
for emerging market economies, forcing them to follow suit, we believe that
because high interest rates already prevail in many emerging markets, the effect
of higher U.S. rates could be less detrimental to emerging markets in the future
than has previously been experienced. This, combined with floating exchange
rates and historically low levels of inflation, could enable monetary
authorities in countries such as Mexico and Brazil to reduce rates.
We will maintain our focus on bonds from countries that we believe are making
progress on structural reform and adhering to prudent demand management
policies. In our opinion, the underlying value of such securities may increase
as a result of economic performance and improved creditworthiness of these
countries. Although volatility could continue to affect countries with weak
currencies, we are optimistic that many of them may be able to service their
debt obligations through privatization and financial reform. Meanwhile, we will
continue to follow a defensive credit and currency posture until we believe
credit risk sensitivity and its volatility have stabilized.
TOP 10 COUNTRIES REPRESENTED
IN THE FUND
8/31/99
% OF TOTAL
COUNTRY NET ASSETS
Mexico 22.8%
Argentina 16.9%
Brazil 12.8%
Turkey 8.5%
Venezuela 8.3%
Bulgaria 4.8%
Indonesia 4.3%
Russia 3.9%
Philippines 3.8%
Ecuador 3.4%
3
PAGE
Of course, investments in foreign securities involve special risks, such as
market and currency volatility, and adverse economic, social, and political
developments in the countries where the Fund invests. Emerging markets
securities involve heightened risks related to the same factors, in addition to
risks associated with their relatively small size and lesser liquidity.
Investing in any emerging market means accepting a certain amount of volatility
and, in some cases, the consequences of severe market corrections.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 1999, the end of the reporting period. However, market and economic
conditions are changing constantly, which can be expected to affect our
investment strategies and the Fund's portfolio composition. Although past
performance is not predictive of future results, these insights may help you
better understand our investment and management philosophy.
We appreciate your support, welcome your comments, and look forward to serving
you in the future.
Sincerely,
Portfolio Management Team
Templeton Emerging Markets Income Fund, Inc.
4
PAGE
PERFORMANCE SUMMARY AS OF 8/31/99
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of the Fund's operating expenses. Past distributions are not indicative of
future trends. All total returns include reinvested distributions according to
the terms specified in the Fund's dividend reinvestment and cash purchase plan
and do not reflect any sales charges paid at inception or brokerage commissions
paid on secondary market purchases.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION
CHANGE 8/31/99 8/31/98
<S> <C> <C> <C>
Net Asset Value +$1.90 $11.36 $9.46
Market Price (NYSE) +$1.1825 $9.9375 $8.125
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS (9/1/98 - 8/31/99)
<S> <C>
Dividend Income $1.2400
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE
INCEPTION
1-YEAR 5-YEAR (9/23/93)
<S> <C> <C> <C>
Cumulative Total Return(1)
Based on change in
Net asset value 35.16% 54.67% 47.62%
Based on change in
Market price 37.66% 32.35% 19.50%
Average Annual Total Return (2)
Based on change in
Net asset value 35.16% 9.11% 6.78%
Based on change in
Market price 37.66% 5.76% 3.05%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
Past expense reductions by the Fund's manager and shareholder servicing agent
increased the Fund's total return. Without these reductions, total return would
have been lower.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility, and the economic,
social and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. Also, as
a non-diversified investment company, the Fund may invest in a relatively small
number of issuers and, as a result, be subject to greater risk of loss with
respect to its portfolio securities. You may have a gain or loss when you sell
your shares.
Past performance is not predictive of future results.
5
PAGE
IMPORTANT NOTICE TO SHAREHOLDERS
EURO RISK. On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets. Because this change to a single
currency is new and untested, it is not possible to predict the impact of the
euro on the business or financial condition of European issuers which the Fund
may hold in its portfolio, and their impact on Fund performance. To the extent
the Fund holds non-U.S. dollar (euro or other) denominated securities, it will
still be exposed to currency risks due to fluctuations in those currencies
versus the U.S. dollar.
YEAR 2000 ISSUE. Like all investment companies, the Fund's business operations
depend on a worldwide network of computer systems that contain date fields. Many
of the systems currently use a two-digit date field to represent the date, and
these systems must be changed or modified to enable them to distinguish the Year
1900 from the Year 2000 (commonly referred to as the Year 2000 problem).
When the Year 2000 arrives, the Fund's operations could be adversely affected if
the computer systems used by any of the parties who service the Fund or with
which it does business are not Year 2000 ready. The Fund could experience
difficul-
6
PAGE
ties in effecting transactions if any of its foreign subcustodians, or if
foreign broker-dealers or foreign markets are not ready for Year 2000.
When evaluating current and potential portfolio positions, Year 2000 is one of
the factors the Fund's investment manager considers. The investment manager will
rely upon public filings and other statements made by companies about their Year
2000 readiness. Issuers in countries outside the U.S., particularly in emerging
markets, may be more susceptible to Year 2000 risks and there may be less public
disclosure of these factors. The investment manager, of course, cannot audit
each company and its major suppliers to verify their Year 2000 readiness. The
Fund's ability to reduce the effects of the Year 2000 problem is also very much
dependent upon the efforts of third parties over which the Fund and its
investment manager may have no control.
If a company in which the Fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities will also be adversely
affected. A decrease in the value of one or more of the Fund's portfolio
holdings may have an impact on the Fund's performance.
Franklin Resources, Inc. (Resources) established a Year 2000 Project Team in
1996. This team has been making the changes necessary to make the computer
systems that service the Fund and its shareholders Year 2000 compliant and
continues to seek reasonable assurances from all
7
PAGE
suppliers that they will be Year 2000 compliant on a timely basis. Resources is
also developing a contingency plan of procedures to follow (where feasible) in
the event of the failure of any mission critical systems. However, in an
operation as complex and geographically distributed as Resources' business, the
alternatives to use of normal systems, especially mission critical systems, or
supplies of electricity or long-distance voice and data lines are limited.
PORTFOLIO MANAGEMENT. Templeton Investment Counsel, Inc. (Investment Counsel),
through its Templeton Global Bond Managers division (Global Bond Managers), is
the Fund's investment manager. Together, Investment Counsel and its affiliates
manage over $222 billion in assets. Since January 1999, a team from Global Bond
Managers is responsible for the day-to-day management of the Fund.
8
PAGE
FRANKLIN TEMPLETON
IS READY FOR YEAR 2000
Year 2000 Readiness Disclosure as of 9/30/99
WE ARE READY!
WE'VE DONE A LOT TO PREPARE!
The enormous scope of this project encompassed practically every
computer-dependent record and process within the company. Naturally, our Y2K
plan focused first on readying "mission-critical" systems -- those that are
necessary for our core business functions. As of September 30, 1999, all our
mission-critical systems that could affect our shareholders were certified as
Y2K compliant.
Our business operations rely greatly on a complex, worldwide network of computer
systems owned and managed by third parties. We continue to work with these
outside companies and your Fund's transfer agent to confirm their preparedness
for Year 2000.
WE HAVE CONTINGENCY PLANS.
Our company recognizes that even our extensive testing cannot guarantee the
absence of difficulties associated with the Y2K transition. Therefore, we are
developing and integrating worldwide contingency plans.
9
PAGE
Franklin Templeton is confident it is well-positioned to meet the challenges of
Y2K.
HOW DOES YEAR 2000 AFFECT OUR PORTFOLIO MANAGERS' INVESTMENT STRATEGIES?
All our portfolio managers recognize the importance of Year 2000 and its
potential to impact the issuers and industries in which we invest, as well as
the U.S. and world economy as a whole. As long-term investors, we seek to make
and hold investments in issuers we believe are well-managed, with good prospects
for the future. In our experience, such issuers are more likely to have
sufficient Y2K programs in place.
Technological changes are ever-present in our industry, and we believe we have
the experience and skills necessary to realize and to react to any challenges
that may arise due to this transition. Once again, Franklin Templeton is ready
for Year 2000, and we look forward to moving into the new millennium with you.
For additional information on Franklin Templeton's Y2K efforts, check our Web
site at www.franklintempleton.com.
These statements should be considered Year 2000 Readiness Disclosures, as such
term is understood under the "Year 2000 Information and Readiness Disclosure
Act." This information is not intended as a representation or warranty and does
not create a legal obligation on the part of Franklin Resources, Inc. or its
affiliates to the recipient.
10
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------
1999+ 1998 1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year......................... $9.46 $14.33 $12.92 $11.52 $12.35
--------------------------------------------------------
Income from investment operations:
Net investment income..................................... 1.26 1.22 1.18 1.24 1.33
Net realized and unrealized gains (losses)................ 1.88 (4.85) 1.47 1.40 (.92)
--------------------------------------------------------
Total from investment operations........................... 3.14 (3.63) 2.65 2.64 .41
--------------------------------------------------------
Distributions from net investment income................... (1.24) (1.24) (1.24) (1.24) (1.24)
--------------------------------------------------------
Net asset value, end of year............................... $11.36 $9.46 $14.33 $12.92 $11.52
========================================================
Total Return
Based on market value per share........................... 37.66% (33.52)% 22.11% 23.73% (4.28)%
Based on net asset value per share........................ 35.16% (27.44)% 22.20% 24.31% 3.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................ $540,977 $450,329 $682,212 $614,951 $548,448
Ratios to average net assets:
Expenses.................................................. 1.18% 1.18% 1.19% 1.09% .81%
Expenses, excluding waiver and payments by affiliate...... 1.18% 1.18% 1.19% 1.20% 1.28%
Net investment income..................................... 11.30% 9.01% 8.62% 10.14% 11.79%
Portfolio turnover rate.................................... 38.29% 122.92% 266.79% 77.90% 58.73%
</TABLE>
+Based on average weighted shares outstanding.
See Notes to Financial Statements.
11
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES 95.5%
ARGENTINA 16.9%
Bridas Corp., 12.50%, 11/15/99.............................. $ 12,600,000 $ 12,757,500
Republic of Argentina:
9.25%, 2/23/01............................................ 31,380,000 29,889,450
8.75%, 5/09/02............................................ 11,600,000 10,480,600
11.00%, 10/09/06.......................................... 6,575,000 6,085,984
Reg S, 11.75%, 2/12/07.................................... 13,180,000ARS 10,594,484
11.375%, 1/30/17.......................................... 9,400,000 8,295,500
9.75%, 9/19/27............................................ 16,900,000 13,171,438
------------
91,274,956
------------
BRAZIL 12.8%
Companhia Paranaense De Energia-Copel, 9.75%, 5/02/05....... 5,700,000 5,030,147
Globo Communicacoes Participacoes Ltd., 10.625%,12/05/08.... 7,000,000 5,092,500
Republic of Brazil:
11.625%, 4/15/04.......................................... 6,800,000 6,155,700
9.375%, 4/07/08........................................... 18,400,000 13,915,000
L, FRN, 5.938%, 4/15/12................................... 18,275,000 10,508,125
FRN, 8.00%, 4/15/14....................................... 12,729,813 7,743,588
10.125%, 5/15/27.......................................... 28,580,000 20,506,150
------------
68,951,210
------------
BULGARIA 4.8%
Republic of Bulgaria:
FRN, 5.875%, 7/28/11...................................... 28,830,000 19,874,825
Series A, FRN, 5.875%, 7/28/24............................ 9,290,000 6,270,750
------------
26,145,575
------------
COLOMBIA 1.5%
Republic of Colombia, 9.75%, 4/23/09........................ 9,700,000 7,857,000
------------
ECUADOR 3.4%
Republic of Ecuador:
144A, 11.25%, 4/25/02..................................... 8,250,000 4,269,375
Reg S, 11.25%, 4/25/02.................................... 20,680,000 10,701,900
FRN, 6.00%, 2/28/25....................................... 9,350,000 3,307,563
------------
18,278,838
------------
INDIA .1%
+Essar Steel Ltd.:
144A, FRN, 7.635%, 7/20/99................................ 475,000 213,750
Reg S, FRN, 7.635%, 7/20/99............................... 495,000 222,750
------------
436,500
------------
INDONESIA 4.3%
*PT Astra International, wts., 12/31/03..................... 5,786,583 904,743
PT Indah Kiat Finance Mauritius Ltd., 10.00%, 7/01/07....... 16,375,000 10,070,625
PT Indah Kiat Pulp & Paper Corp., 144A, 8.875%, 11/01/00.... 4,840,000 4,356,000
</TABLE>
12
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
INDONESIA (CONT.)
+PT Inti Indorayon Utama, 9.125%, 10/15/00.................. $ 6,830,000 $ 1,468,450
Tjiwi Kimia Int'l Finance Co. BV, 13.25%, 8/01/01........... 8,000,000 6,560,000
------------
23,359,818
------------
JAMAICA 1.0%
Government of Jamaica, Reg S, 9.625%, 7/02/02............... 5,650,000 5,367,500
------------
MEXICO 22.8%
Banco Nacional Obra Serv., 9.625%, 11/15/03................. 3,500,000 3,412,500
Bepensa SA, 144A, 9.75%, 9/30/04............................ 7,060,000 6,053,950
Cemex SA, 144A, 10.75%, 7/15/00............................. 6,440,000 6,592,950
Nacional Financiera Sociedad Nacional de Credito, 144A,
9.75%, 3/12/02............................................ 5,850,000 5,946,525
Petroleos Mexicanos, 144A, 9.375%, 12/02/08................. 5,280,000 5,412,000
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02..... 7,277,000 5,239,440
United Mexican States:
9.75%, 2/06/01............................................ 8,230,000 8,581,833
9.875%, 1/15/07........................................... 19,880,000 19,949,580
8.625%, 3/12/08........................................... 22,575,000 20,910,094
11.375%, 9/15/16.......................................... 32,020,000 33,444,890
11.50%, 5/15/26........................................... 7,280,000 7,947,940
------------
123,491,702
------------
NETHERLANDS .7%
Astra Overseas Finance NV:
FRN, 6.294%, 12/31/01..................................... 923,000 696,865
FRN, 6.294%, 6/30/05...................................... 3,113,000 1,852,235
FRN, zero coupon, 6/30/06................................. 4,036,000 1,230,980
------------
3,780,080
------------
PERU .2%
Republic of Peru, FRN, 4.50%, 3/07/17....................... 2,130,000 1,243,388
------------
PHILIPPINES 3.8%
Philippine Long Distance Telephone Co.:
10.625%, 6/02/04.......................................... 5,500,000 5,600,887
9.25%, 6/30/06............................................ 5,080,000 4,781,550
Republic of Philippines, 8.75%, 10/07/16.................... 5,450,000 4,977,213
Subic Power Corp., 144A, 9.50%, 12/28/08.................... 5,962,069 5,351,792
------------
20,711,442
------------
POLAND 1.5%
Poland Communications Inc., 9.875%, 11/01/03................ 8,190,000 8,149,050
------------
RUSSIA 3.9%
Minfin of Russia:
144A, 10.00%, 6/26/07..................................... 20,050,000 9,674,125
Reg S, 10.00%, 6/26/07.................................... 21,615,000 10,429,234
</TABLE>
13
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT** VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM SECURITIES (CONT.)
RUSSIA (CONT.)
+Vnesheconombank:
FRN, 5.969%, 12/15/15..................................... $ 6,342,340 $ 945,326
FRN, 6.063%, 12/15/20..................................... 2,500,000 278,125
------------
21,326,810
------------
TRINIDAD AND TOBAGO 1.0%
SEI Holdings IX Inc.:
11.00%, 11/30/00.......................................... 380,000 380,000
144A, 11.00%, 11/30/00.................................... 5,210,000 5,210,000
------------
5,590,000
------------
TURKEY 8.5%
Cellco Finance NV:
144A, 15.00%, 8/01/05..................................... 9,450,000 9,905,018
Reg S, 15.00%, 8/01/05.................................... 1,000,000 1,048,150
Pera Financial Services:
144A, 9.375%, 10/15/02.................................... 8,950,000 7,965,500
Reg S, 9.375%, 10/15/02................................... 1,100,000 979,000
Republic of Turkey:
144A, 9.875%, 2/23/05..................................... 7,450,000 6,956,460
Reg S, 9.875%, 2/23/05.................................... 3,600,000 3,361,511
144A, 10.00%, 9/19/07..................................... 17,450,000 15,958,025
------------
46,173,664
------------
VENEZUELA 8.3%
Republic of Venezeula:
144A, 9.125%, 6/18/07..................................... 7,200,000 5,310,000
Reg S, 9.125%, 6/18/07.................................... 10,050,000 7,411,875
9.25%, 9/15/27............................................ 52,989,000 32,058,345
------------
44,780,220
------------
TOTAL LONG TERM SECURITIES (COST $627,492,397).............. 516,917,753
SHORT TERM INVESTMENTS (COST $7,571,000) 1.4%
Chase Securities Inc, 5.50%, 9/01/99, Time Deposit.......... 7,571,000 7,571,000
------------
TOTAL INVESTMENTS (COST $635,063,397) 96.9%................. 524,488,753
OTHER ASSETS, LESS LIABILITIES 3.1%......................... 16,488,375
------------
TOTAL NET ASSETS 100.0%..................................... $540,977,128
============
</TABLE>
CURRENCY ABBREVIATION:
ARS -- Argentine Peso
*Non income producing securities.
**Securities denominated in U.S. dollars unless otherwise indicated.
+Represents defaulted bonds.
See Notes to Financial Statements.
14
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $635,063,397).... $ 524,488,753
Interest receivable........................................ 17,405,043
-------------
Total assets.......................................... 541,893,796
-------------
Liabilities:
Payable to affiliates...................................... 455,082
Funds advanced by custodian................................ 177,603
Accrued expenses........................................... 283,983
-------------
Total liabilities..................................... 916,668
-------------
Net assets, at value........................................ $ 540,977,128
=============
Net assets consist of:
Undistributed net investment income........................ $ 11,558,025
Net unrealized depreciation................................ (110,574,627)
Accumulated net realized loss.............................. (24,945,237)
Capital shares............................................. 664,938,967
-------------
Net assets, at value........................................ $ 540,977,128
=============
Net asset value per share ($540,977,128 / 47,605,757 shares
outstanding).............................................. $11.36
=============
</TABLE>
See Notes to Financial Statements.
15
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,392)........................... $ 66,015,016
Expenses:
Management fees (Note 3)................................... $ 4,497,579
Administrative fees (Note 3)............................... 793,690
Transfer agent fees........................................ 594,800
Custodian fees............................................. 54,500
Reports to shareholders.................................... 128,600
Registration and filing fees............................... 65,500
Professional fees.......................................... 57,400
Directors' fees and expenses............................... 36,100
Other...................................................... 3,888
-----------
Total expenses........................................ 6,232,057
------------
Net investment income........................... 59,782,959
------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments............................................... (17,001,799)
Foreign currency transactions............................. (11,941)
-----------
Net realized loss..................................... (17,013,740)
Net unrealized appreciation on:
Investments............................................... 106,909,666
Translation of assets and liabilities denominated in
foreign currencies...................................... 30
-----------
Net unrealized appreciation................................. 106,909,696
------------
Net realized and unrealized gain............................ 89,895,956
------------
Net increase in net assets resulting from operations........ $149,678,915
============
</TABLE>
See Notes to Financial Statements.
16
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 59,782,959 $ 57,861,246
Net realized gain (loss) from investments and foreign
currency transactions.................................... (17,013,740) 13,595,331
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies....................................... 106,909,696 (244,307,590)
--------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ 149,678,915 (172,851,013)
Distributions to shareholders from net investment income... (59,031,139) (59,031,139)
--------------------------------
Net increase (decrease) in net assets................... 90,647,776 (231,882,152)
Net assets:
Beginning of year.......................................... 450,329,352 682,211,504
--------------------------------
End of year................................................ $540,977,128 $ 450,329,352
================================
Undistributed net investment income included in net assets:
End of year................................................ $ 11,558,025 $ 8,455,421
================================
</TABLE>
See Notes to Financial Statements.
17
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Emerging Markets Income Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940 as a closed-end, non-diversified investment
company. The Fund seeks high current income, with a secondary objective of
capital appreciation, by investing primarily in a portfolio of high-yielding
debt obligations of sovereign or sovereign-related entities and private sector
companies in emerging market countries. The following summarizes the Fund's
significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
portfolio securities and income items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. When the Fund purchases or sells foreign securities it will customarily
enter into a foreign exchange contract to minimize foreign exchange risk from
the trade date to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the recorded
amounts of interest and foreign withholding taxes and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in foreign exchange rates on foreign currency
denominated assets and liabilities other than investments in securities held at
the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Distributions to shareholders are recorded on the ex-dividend date.
18
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL SHARES
At August 31, 1999, there were 100,000,000 shares authorized ($.01 par value).
During the years ended August 31, 1999 and 1998, there were no share
transactions; all reinvested distributions were satisfied with previously issued
shares purchased in the open market.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton
Investment Counsel, Inc. (TICI) and Franklin Templeton Services, Inc. (FT
Services), the Fund's investment manager and administrative manager,
respectively.
The Fund pays an investment management fee to TICI of 0.85% per year of the
average daily net assets of the Fund. The Fund pays an administrative fee to FT
Services of 0.15% per year of the Fund's average daily net assets. The Fund pays
monthly a transfer agent fee to Paine Webber Group Inc. equal, on an annual
basis to 0.10% of the average daily assets of the Fund.
4. INCOME TAXES
At August 31, 1999, the net unrealized depreciation based on the cost of
investments for income tax purposes of $643,517,780 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 1,716,453
Unrealized depreciation..................................... (120,745,480)
-------------
Net unrealized depreciation................................. $(119,029,027)
=============
</TABLE>
Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and losses realized
subsequent to October 31, on the sale of securities.
At August 31, 1999, the Fund had deferred capital losses occurring subsequent to
October 31, 1998 of $14,500,000. For tax purposes, such losses will be reflected
in the year ending August 31, 2000.
At August 31, 1999, the Fund had tax basis capital losses of $1,900,000 which
may be carried over to offset future capital gains. Such losses expire August
31, 2007.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1999 aggregated $193,767,401 and $194,812,422, respectively.
19
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton Emerging Markets
Income Fund, Inc. (the "Fund") at August 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at August
31, 1999 by correspondence with the custodian, provides a reasonable basis for
the opinion expressed above. The financial statements for the year ended August
31, 1998, including financial highlights for each of the four years in the
period then ended, were audited by other independent accountants whose report
dated September 29, 1998 expressed an unqualified opinion on those financial
statements.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
September 30, 1999
20
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Annual Meeting of Shareholders, February 16, 1999
An Annual Meeting of Shareholders of the Fund was held at the Fund's offices,
500 E. Broward Blvd., Ft. Lauderdale, Florida, on February 16, 1999. The purpose
of the meeting was to elect six Directors of the Fund; to ratify the selection
of McGladrey & Pullen, LLP, as the Fund's independent auditors for the fiscal
year ending August 31, 1999; and in their discretion, to authorize the
proxyholders to vote upon such other matters that may legally come before the
meeting or any adjournment of the meeting. At the meeting, the following persons
were elected by the shareholders to serve as Directors of the Fund: Harris J.
Ashton, Nicholas F. Brady, Frank J. Crothers, S. Joseph Fortunato, Edith E.
Holiday and Constantine D. Tseretopoulos.* Shareholders ratified the selection
of McGladrey & Pullen, LLP, to serve as the Fund's independent auditors for the
fiscal year ending August 31, 1999. No other business was transacted at the
meeting.
The results of the voting at the Annual Meeting are as follows:
1. The election of six (6) Directors:
<TABLE>
<CAPTION>
% OF % OF
OUTSTANDING OUTSTANDING
TERM EXPIRING 2001: FOR SHARES WITHHELD SHARES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank J. Crothers........................................... 42,147,197 88.53% 863,226 1.82%
TERM EXPIRING 2002:
- --------------
Harris J. Ashton............................................ 42,175,700 88.59% 834,723 1.76%
Nicholas F. Brady........................................... 42,192,241 88.63% 818,182 1.72%
S. Joseph Fortunato......................................... 42,159,453 88.56% 850,970 1.79%
Edith E. Holiday............................................ 42,162,604 88.57% 847,819 1.78%
Constantine D. Tseretopoulos................................ 42,111,515 88.46% 898,908 1.89%
</TABLE>
2. The ratification of the selection of McGladrey & Pullen, LLP, as independent
auditors of the Fund for the fiscal year ending August 31, 1999:
<TABLE>
<CAPTION>
% OF % OF % OF % OF
OUTSTANDING OUTSTANDING OUTSTANDING BROKER OUTSTANDING
FOR SHARES AGAINST SHARES ABSTAIN SHARES NON-VOTES SHARES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
42,190,084 88.62% 379,542 0.80% 440,797 0.93% -- --
</TABLE>
*Harmon E. Burns, John Wm. Galbraith, Andrew H. Hines, Jr., Charles B. Johnson,
Betty P. Krahmer, Gordon S. Macklin and Fred R. Millsaps are Directors of the
Fund who are currently serving and whose terms of office continued after the
Annual Meeting of Shareholders.
21
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
Dividend Reinvestment and Cash Purchase Plan
The Fund offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan") with
the following features:
If shares of the Fund are held in the shareholder's name, the shareholder will
automatically be a participant in the Plan unless he elects to withdraw. If the
shares are registered in the name of a broker-dealer or other nominee (i.e., in
"street name"), the broker-dealer or nominee will elect to participate in the
Plan on the shareholder's behalf unless the shareholder instructs them
otherwise, or unless the reinvestment service is not provided by the
broker-dealer or nominee.
Participants should contact ChaseMellon Shareholder Services, Investor Services,
P.O. Box 3338, South Hackensack, NJ 07606-1938, to receive the Plan brochure.
To receive dividends or distributions in cash, the shareholder must notify
Mellon Securities Trust Company (the "Plan Agent") at the address above or the
institution in whose name the shares are held. The Plan Agent must receive
written notice within 10 business days before the record date for the
distribution.
Whenever the Fund declares dividends in either cash or common stock of the Fund,
if the market price is equal to or exceeds net asset value at the valuation
date, the participant will receive the dividends entirely in stock at a price
equal to the net asset value, but not less than 95% of the then current market
price of the Fund's shares. If the market price is lower than net asset value or
if dividends and/or capital gains distributions are payable only in cash, the
participant will receive shares purchased on the New York Stock Exchange or
otherwise on the open market.
A participant has the option of submitting additional payments to the Plan
Agent, in any amounts of at least $100, up to a maximum of $5,000 per month, for
the purchase of Fund shares for his or her account. These payments shall be made
by check or money order payable to "Mellon Securities Trust Co." and sent to
ChaseMellon Shareholder Services, Investor Services, P.O. Box 382009,
Pittsburgh, PA 15250-8009, Attn: Templeton Emerging Markets Income Fund, Inc.
The Plan Agent shall apply such payments (less a $5.00 service charge and less a
pro rata share of trading fees) to purchases of Fund shares in the open market.
The automatic reinvestment of dividends and/or capital gains does not relieve
the participant of any income tax that may be payable on dividends or
distributions.
The participant may withdraw from the Plan without penalty at any time by
written notice to the Plan Agent sent to ChaseMellon Shareholder Services,
Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938. Upon
withdrawal, the participant will receive, without charge, stock certificates
issued in the participant's name for all full shares held by the Plan Agent; or,
if the participant wishes, the Plan Agent will sell the participant's shares and
send the proceeds, less a service charge of $5.00 and less trading fees.
Whenever shares are purchased on the New York Stock Exchange or otherwise on the
open market, each participant will pay a pro rata portion of trading fees.
Trading fees will be deducted from amounts to be invested.
22
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
SHAREHOLDER INFORMATION
Shares of Templeton Emerging Markets Income Fund, Inc. are traded daily on the
New York Stock Exchange under the symbol "TEI." Information about the net asset
value and the market price is published each Monday in the Wall Street Journal,
weekly in Barron's and each Saturday in The New York Times and other newspapers.
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions section of newspapers.
For current information about dividends and shareholder accounts, call
1-800/416-5585.
The daily closing net asset value as of the previous business day may be
obtained when available by calling Franklin Templeton Fund Information after 7
a.m. pacific time any business day at 1-800/DIAL BEN(R) (1-800/342-5236). The
Fund's net asset value and dividends are also listed on the NASDAQ Stock Market,
Inc.'s Mutual Fund Quotation Service ("NASDAQ MFQS"). Shareholders not receiving
copies of the Reports to Shareholders because their shares are registered in the
name of a broker or a custodian can request that they be added to the Fund's
mailing list, by writing Templeton Emerging Markets Income Fund, Inc., 100
Fountain Parkway, P.O. Box 33030, St. Petersburg, FL 33733-8030.
23
PAGE
TEMPLETON EMERGING MARKETS INCOME FUND, INC.
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the August 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On August 31, 1999, the Fund, with the approval of its Board of Directors and
its Audit Committee, engaged PwC as its independent auditors.
24
PAGE
ANNUAL REPORT
TEMPLETON EMERGING MARKETS
INCOME FUND, INC.
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, Florida 33733-8030
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
1-800/416-5585
www.chasemellon.com
FUND INFORMATION
1-800/342-5236
Investors should be aware that the value of investments made for the Fund may go
down as well as up. Like any investment in securities, the value of the Fund's
portfolio will be subject to the risk of loss from market, currency, economic,
political and other factors. The Fund and its investors are not protected from
such losses by the Investment Manager. Therefore, investors who cannot accept
this risk should not invest in shares of the Fund. To ensure the highest quality
of service, telephone calls to or from our service departments may be monitored,
recorded and accessed. These calls can be determined by the presence of a
regular beeping tone.
TLTEI A99 10/99 [LOGO] Printed on recycled paper
